Credit vs Debit: Why Millennials and Gen Z Are Choosing Wrong — And Overpaying for It

The biggest mistake younger consumers make today, according to money expert Martin Lewis, is believing that debit cards are the safe and sensible way to pay. In reality, he warns, that mindset is outdated and costing Millennials and Gen Z far more than they realise.

On his latest podcast, Lewis said the most important lesson modern bank users must understand is this: when you are overdrawn, your debit card becomes the most expensive form of borrowing you have. For millions who dip into their overdraft each month, that misunderstanding is quietly draining their income.

Debit Cards Are Becoming the Costliest Debt for Young Consumers

Lewis told listeners that the long-held belief that credit cards are bad and debit cards are good is fundamentally flawed.

'Many people tend to think credit cards are bad, debit cards are good, but it just isn't that simple,' he said. He explained that overdrafts, which many users slip into without noticing, now often charge around 40 per cent annual interest, compared with 25 per cent on typical high street credit cards.

'If you're overdrawn, a debit card is a debt card too,' he stressed. 'Overdrafts are more expensive debt than credit cards.'

Lewis was clear. No one should owe money on any card. But if someone must choose the lesser of two evils, owing on a credit card can be significantly cheaper than sinking into an overdraft.

Why Credit Cards Offer Stronger Protection Than Debit Cards

Another costly misunderstanding among younger generations, Lewis said, is failing to recognise the legal protection attached to credit card purchases.

Under Section 75 of the Consumer Credit Act 1974, credit card providers are jointly liable with retailers for faulty or undelivered goods costing between £100 and £30,000. This protection applies even if a customer pays only a small deposit on their credit card.

'If you're buying something that costs over £100 up to £30,000 and you pay for any of it, even a penny of it on a credit card, the credit card company is liable for the entire amount,' he said.

Debit cards, by contrast, only offer chargeback, which is not a legal guarantee and can be rejected.

For young people booking holidays, buying electronics or paying deposits on rentals, this protection gap can be substantial.

Rewards and Cashback: Extra Value Millennials and Gen Z Are Missing

Lewis also highlighted one of the most overlooked advantages: rewards.

'On a credit card, you can get rewards on your spending, cashback of up to 5 per cent for a few months and up to 1 per cent on a regular basis,' he explained.

When used responsibly, credit cards can effectively pay consumers to spend money they were going to spend anyway. Debit cards cannot do this.

Responsible Use: The Line Between Benefit and Burden

Financial experts, including Forbes, note that credit cards only offer value when used sensibly. The rules are simple and well known.

• Do not spend more than you can afford.
• Pay your balance in full every month.
• Choose a card that matches your lifestyle and spending pattern.

For those unsure where to start, Martin Lewis' website MoneySavingExpert publishes a comprehensive guide comparing the best credit cards for rewards, zero per cent spending, balance transfers and travel.

Younger Generations Are Overpaying, But They Do Not Have To

Whether you are Millennial, Gen Z or older, Lewis' message remains the same: your choice of card directly affects how much you pay each month.

Debit cards feel safe, but overdrafts are now among the most expensive debts in the United Kingdom. Credit cards, used correctly, can be cheaper, safer and more rewarding.

The key is not the card itself, but understanding how it works, and choosing the option that protects your money rather than quietly draining it.